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Business regulation, rule of law and formal entrepreneurship: evidence from developing countries

Author

Listed:
  • Aldo Salinas
  • Cristian Ortiz
  • Moreno Muffatto

Abstract

Purpose - The purpose of this paper is to examine the influence of formal rules such as business regulation and rule of law on the level of formal entrepreneurship in Latin America countries over time. Design/methodology/approach - The authors use the panel regression techniques to examine the influence of business regulation and rule of law on formal entrepreneurship. In particular, they implement together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” view. At the empirical level, the “dual” definition corresponds to the business owners’ rate. As for the “legal” definition, it corresponds to the business registration rate. The evidence presented is based on two panels. The first panel covers the period 2004–2015, and the data set contains 180 observations in 18 countries. The second panel covers the period 2006–2015, and the data set contains 134 observations in 14 countries. Findings - The impact of institutional variables on formal entrepreneurship depends on the definition employed: “dual” or “legal.” Thus, the results suggest that business owners’ rate is more substantial in Latin American countries that have weak property rights. Conversely, from a legal definition, the business registration rate is more significant in Latin American countries that have most secure property rights and fewer labor regulations. These contradictory results suggest that the legal definition of formal entrepreneurship, but not the dual definition, seems to be associated with the type of entrepreneurial activity that promotes economic growth and development. Research limitations/implications - The results support the importance of conducting analyzes that take into account the different types of entrepreneurial activities that are present in an economy, and in addition the relevance of understanding what each measure is capturing of the heterogeneous phenomenon of entrepreneurship. Practical implications - The results suggest that the entrepreneurship policy should focus on the quality of entrepreneurship, rather than merely seeking to increase the number of new businesses. Additionally, the results suggest that the legalistic definition of formal entrepreneurship is probably the most relevant for many policy issues. Originality/value - The paper analyzes together two alternative views of formal entrepreneurship suggested in the literature: the “dual” and “legalistic” views. Also, the paper has used the Latinobarómetro data set, which has not been extensively used by scholars in the field of entrepreneurship and which could be useful for longitudinal research on entrepreneurial activity in Latin American countries.

Suggested Citation

  • Aldo Salinas & Cristian Ortiz & Moreno Muffatto, 2019. "Business regulation, rule of law and formal entrepreneurship: evidence from developing countries," Journal of Entrepreneurship and Public Policy, Emerald Group Publishing Limited, vol. 8(2), pages 254-271, September.
  • Handle: RePEc:eme:jepppp:jepp-03-2019-0019
    DOI: 10.1108/JEPP-03-2019-0019
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    Citations

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    Cited by:

    1. Irfan, Muhammad & Elavarasan, Rajvikram Madurai & Ahmad, Munir & Mohsin, Muhammad & Dagar, Vishal & Hao, Yu, 2022. "Prioritizing and overcoming biomass energy barriers: Application of AHP and G-TOPSIS approaches," Technological Forecasting and Social Change, Elsevier, vol. 177(C).
    2. Aldo Salinas & Cristian Ortiz & Pablo Ponce & Javier Changoluisa, 2023. "Does tourism activity reduce the size of the informal economy? Capturing long-term heterogeneous linkages around the world," Tourism Economics, , vol. 29(2), pages 305-347, March.
    3. Salinas, Aldo & Ortiz, Cristian & Changoluisa, Javier & Muffatto, Moreno, 2023. "Testing three views about the determinants of informal economy: New evidence at global level and by country groups using the CS-ARDL approach," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 438-455.
    4. Potts Mark D & Affholter Joseph A & Harless Sydney, 2021. "Entrepreneurship Factors Among Developed Countries and Emerging Regions," South East European Journal of Economics and Business, Sciendo, vol. 16(2), pages 82-100, December.
    5. Giuliano Sansone & Elisa Ughetto & Paolo Landoni, 2021. "Entrepreneurial intention: An analysis of the role of Student-Led Entrepreneurial Organizations," Journal of International Entrepreneurship, Springer, vol. 19(3), pages 399-433, September.

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